What makes for a great entrepreneur?

Over my 30 years in Silicon Valley, I’ve had the good fortune to meet thousands of entrepreneurs, and a few dozen great ones. People often ask me: What separates the exceptional entrepreneurs from the rest of the pack?

What follows is my attempt to answer that question. I retired from the venture capital business in 2005 to teach at Stanford’s Graduate School of Business. In both of those jobs, I thought about exceptional entrepreneurship a lot. A few years later, at a time in my life when starting a company was the furthest thing from my mind, I became an entrepreneur myself, when I established a software-based financial advisor, Wealthfront. So I have three different perspectives on this issue.

Entrepreneurs’ abilities, like those of people in most every profession, follow a bell curve distribution. The vast majority are mediocre, a small percentage are terrible, and a small percentage are truly great.

Outside the tech world, exceptional entrepreneurs are diligent and persevering, among other qualities. Their success depends on their ability to execute.

Silicon Valley’s great entrepreneurs are different. Their greatness comes from the quality of their insights - in other words, their ability to recognize how an inflection point in technology can solve an important problem. That insight emerges from what I think of as authenticity to a particular problem. The great entrepreneurs I know have a deep command of the problem they are trying to solve. They achieve that deep command, in turn, by following their passions.

Entrepreneurial motivations

My teaching partner at Stanford, Mark Leslie (an incredibly successful entrepreneur who was the founding CEO of Veritas Software and grew its revenues to $1.5 billion before retiring to teach), likes to say great entrepreneurs start companies to:

Change the world

Build a great company

Make money

Those are three pretty ambitious goals. In my experience it’s highly unlikely you’re going to achieve all three by locking yourself in a room and trying to brainstorm ideas until you come up with a good one. There’s a lot more serendipity involved. Great ideas find you, not the other way around.

Steve Jobs, Larry Page, and Mark Zuckerberg did not pursue a methodical process to develop their ideas. Their insights came to them in the course of following their passions.

Steve Jobs had a home-brew computer club. Larry Page, who was working on a PhD in computer science at Stanford, used his understanding of ranking in academic publishing to develop the crawler that led to Google. Facebook grew out of Mark Zuckerberg’s previous applications, like Facemash. In other words, the ideas found them because they were highly authentic to their opportunities.

I’ll bet none of the three initially set out to develop billion-dollar businesses, but I’m confident they quickly thought they could change the world.

Most great entrepreneurs have a burning desire to build a great company. They instinctively know they need great people to help them achieve their goal, and the only way to attract those helpers is by building a great company, with all that entails. Creating a culture that makes it fun to come to work plays a very important role.

To build a great company and culture, you can’t be in too big a rush to make money. Making decisions for short-term gain almost always means you’re losing sight of the big goal. My friend Marc Andreessen talked about the power of delayed gratification recently, saying that great companies, including Facebook, focus on things like user experience ahead of monetization.

A famous Stanford University psychology study allowed preschoolers to pick between a marshmallow and pretzel and tested the conditions under which they would wait for the treat they most wanted. Facebook colleagues like to say Mark Zuckerberg would still be sitting there, waiting to eat his marshmallow, if he were part of the study. Building a company takes sacrifice, and only a few people are up to the challenge.

Don’t get me wrong. I believe making money is a fine goal. It just shouldn’t be the primary one. Without an incentive to make money, an entrepreneur could never attract financing, which is almost always required to build a large business. It’s just that the great entrepreneurs are far more missionaries than mercenaries. The missionaries are true to their insight, and the money is secondary to it.

Mercenaries, whose primary goal is money, fall somewhere on the middle of the entrepreneur bell curve. They seldom have the desire to change the world that is required for a really big outcome, or the patience to see their idea through. I don’t begrudge them their early payouts. They’re just not the best entrepreneurs.

I know what you’re wondering: What about serial entrepreneurs?

The vast majority of serial entrepreneurs are passionate about being serial entrepreneurs. They enjoy starting companies so much that they feel a need to actively seek ideas. But the ideas they seek out aren’t the best ones. The serial entrepreneurs I’ve known also are far more mercenaries than missionaries. They think that a $50 million sale is a great outcome and it is...for them. It doesn’t change society by building a great company or changing the world.

The truth is serial entrepreneurs almost never build franchise companies that change the world. Building a great company requires having an amazing insight and seldom do people have more than one. There are a few exceptions, like Jim Clark, who founded Silicon Graphics and Netscape Communications Corp., and David Duffield of PeopleSoft and Workday. Even Steve Jobs, one of the best entrepreneurs ever, failed at his second attempt, Next.

I know some people will disagree with my view of serial entrepreneurship. Serial entrepreneurship is glorified right now, but it is not the best the profession has to offer.

My own company

These ideas about entrepreneurship were on my mind after I started teaching. I knew how much work it takes to start a company, and how much benefit good companies bring to the world. So imagine how I felt when a big idea -- a world-changing idea, I hope -- found me. In a word: reluctant. I didn’t want to start a company, but I felt I had to because it addressed a fundamental inequity.

I was happy in my retirement jobs. In addition to teaching, I was serving on the University of Pennsylvania board of trustees, and along with my wife and the Damon Runyon Cancer Research Foundation, created an innovative cancer research funding initiative.

The big idea came to me while I was participating in a Penn endowment committee meeting. Over the years, many of my students and people I recruited to my portfolio companies asked me for advice about investing. I felt badly that I could never give them good answers, because I knew they couldn’t afford the minimums required to access the best investment products and services. Then one day it hit me that I could apply software algorithms to bring endowment-class returns to everyone.

The idea drove me to start Wealthfront, the company on which I now spend much of my time. I was fortunate to recruit some outstanding people who, like me, were passionate about our mission to democratize access to high-quality financial advice.

I don’t know if I’ll ever count myself among the elite group of exceptional entrepreneurs. I do know that the exceptional entrepreneurs I’ve known have changed the world with their companies. I knew that if I didn’t try, I wouldn’t have the chance to do the same.